"It's the steady, quiet, plodding ones who win in the lifelong race." --Robert W. Service
Over the last couple of weeks, the market has done a nice job of shrugging off increased hawkishness by the Fed, a poor jobs report and growing indications of a slowing economy. The indices have been trending steadily higher as they set their sights on the all-time highs we hit last year but they stumbled slightly yesterday and that has perked up our bearish friends.
This market has been very stingy about rewarding the bears so they tend to become very excited very quickly when there is even some minor weakness. A weak close always causes a rush to declare that it's the beginning of the end. We hear about how sentiment is too positive and the mood is complacent. There is talk about overbought conditions and lack of volume. Negative seasonality is always a good bearish argument as well.
The only problem with all the bearish arguments is that we are still waiting for the price action to confirm a more pessimistic view. A few days of softness after the run we've had isn't a change in market character. In fact, it is healthy to pull back and consolidate after a good run.
The bears are going to point at the weakness in biotechnology yesterday caused by stumbles in Biogen (BIIB), Valeant (VRX) and Alexion (ALXN). Biotechnology has been one of the favorite speculative groups lately and it will be a problem if that selling picks up, but we have had good pockets of momentum for stock pickers. This has been a fairly broad advance and isn't at all like what we saw last year when the big cap FANG (FB, AMZN, NFLX, GOOGL) names covered up much underlying weakness.
I often write about how it is better to be reactive rather than anticipatory. We are at a juncture right now where that distinction can be of particular importance. It is very easy to be seduced by the dark side after we have some weakness. Many of us are inclined to embrace a bearish view too fast because the idea of some downside volatility is attractive from a trading standpoint.
One of the ironies of this market is that the bulls are often the ones rooting for weakness because they are having a hard time finding entry points. We may have a complacent mood but that doesn't mean that market players are holding too much long inventory. The contrarians love to point out how positive the mood seems to be but they don't seem to have any real feel for whether folks have actually acted on that optimism. There may be plenty of positive folks but they still have cash they want to put to work.
Technically the market is still solidly on course with the all-time highs in sight. Some weakness in the next couple of days may actually be a setup for a final push to the highs as we head into the FOMC policy decision next week.
Don't be too quick to try to anticipate a market top. The market is still acting just fine.